Answer: a. $18,000
Explanation:
Cumulative Preferred Shares are shares where the company will always pay Preferred dividends and in years they cannot, they accrue it till a time when they can.
In the above question the dividends due to Preferred Shares are,
= 4% * 200,000
= $8,000
In Year 1, $8,000 were declared as dividends.
= 8,000 - 8,000
= 0
This means that the company does not owe preferred dividends from Year 1.
In Year 2, $18,000 was declared as dividends,
= 18,000 - 8,000
= $8,000
This means that in Year 2, the company was able to pay off Preferred dividends and still have some left to pay off Common Shareholders.
In Year 3, $24,000 was declared as dividends.
= 24,000 - 8,000
= $16,000
In year 3 as well, tue company had enough to pay off it's Preferred Dividend obligations meaning that it paid off all of it.
In Year 3 therefore, Preferred Shareholders got the entire $8,000 that was due to them.
